Agreed, MacOS 7 brings back more bad memories than good. I think the virtue here though is not Mac OS 7 itself, but rather the interesting exercise in OS porting.
It's neat, but not particularly impressive or interesting. It's an emulator running as a user space application; The iPhone isn't running Mac OS 7 natively (of course, it can't, since they use different CPU architectures, etc).
There have been classic Mac emulators for OS X for awhile now, and porting it to the iPhone was probably quite easy.
Reminds me of the current Louis CK meme floating about. System 7 is running on your phone. While it in itself right now isn't the most amazing thing, the series of events leading up to it is.
As I drift off to memory land, I still remember the System 7.5.3 update that made icons that were being dragged translucent. That was so exciting back then :)
